linkage banking study report 2018 - fsd zambia

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LINKAGE BANKING IN UGANDA

Contents

LIST OF ACRONYMS IV

LIST OF TABLES IV

LIST OF FIGURES V

PREAMBLE VI

EXECUTIVE SUMMARY VII

INTRODUCTION 1Background .......................................................................................................................................................................... 1

Objectives of the Study .................................................................................................................................................... 2

Methodology ........................................................................................................................................................................ 2

Structure of the report ...................................................................................................................................................... 3

SECTION 1: LINKAGE BANKING MODELS AND FACILITATION 4

OVERVIEW OF LINKAGE BANKING MODELS 4Access to Financial Services ............................................................................................................................................ 4

Linkage Banking Models ................................................................................................................................................... 5

FSP-SLGs linkage with active support from NGOs ..................................................................................................................5

FSP-SLG Linkage Model .........................................................................................................................................................................6

FSP-NGO-SLG Linkage Model ............................................................................................................................................................. 7

LINKAGE BANKING MODELS APPLIED IN UGANDA 8FSP-SLGs Linkage with active support from NGOs ....................................................................................................8

The Linkage Banking Process ............................................................................................................................................................8

Reasons/drivers for linkage banking.............................................................................................................................................9

Products and services offered by FSPs .......................................................................................................................................10

The business processes within this linkage banking .......................................................................................................... 11

Partnerships management and their dynamics ....................................................................................................................14

Key success factors for the NGO facilitated model .............................................................................................................. 15

Challenges encountered in NGO facilitated Linkage Banking model .......................................................................... 15

Impact of linkage banking on the groups ................................................................................................................................. 15

FSP-SLG Linkage Model ....................................................................................................................................................17

The Linkage Banking Process .......................................................................................................................................................... 17

Reasons/drivers for linkage banking........................................................................................................................................... 17

Products and services offered by FSPs .......................................................................................................................................18

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The business processes within this linkage banking .............................................................................................. 18

Key success factors for the FSP direct support model .......................................................................................................19

Challenges encountered in the FSP direct support model ..............................................................................................19

Impact of linkage banking on the groups ................................................................................................................................ 20

Comparative Analysis of the linkage banking models in Uganda ................................................................................ 20

Best practice in linkage facilitation ............................................................................................................................ 21

SECTION 2: GROUP MEMBERS’ EXPERIENCES WITH LINKAGE 23

MAIN RESEARCH FINDINGS 23Demographic Characteristics ........................................................................................................................................ 23

Savings ............................................................................................................................................................................. 25

Drivers of Group Membership ....................................................................................................................................... 25

Expectations of group members ..................................................................................................................................28

Linkage Decisions .............................................................................................................................................................30

Requirements of Linking to FSPs ................................................................................................................................. 31

Reasons for Refusal to Link to FSPs ............................................................................................................................. 32

Dormancy after Linkage .................................................................................................................................................. 33

Perceived Impact of Linkage ..........................................................................................................................................34

Challenges experienced with linkage to banks ........................................................................................................36

Value of Linkage ................................................................................................................................................................ 37

CONCLUSION 38

APPENDICES 40Linkage activities in Uganda ..........................................................................................................................................40

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LIST OF ACRONYMS

AKF The Aga Khan Foundation

ASCA Accumulating Savings and Credit Associations

BoC Bank on Change project

CARE CARE International

CBOs Community Based Organisations

CBTs Community Based Trainers

CRS Catholic Relief Services

FGDs Focus Group Discussions

FSD Financial Sector Deepening

FSDU Financial Sector Deepening Uganda

FSDZ Financial Sector Deepening Zambia

FSPs Financial Services Providers

IGAs Income Generating Activities

MDI Micro Deposit Taking Institution

NGOs Non-Governmental Organisations

ROSCAs Rotating Savings and Credit Associations

SACCOs Savings and Credit Cooperatives Societies

SG Savings groups

SILC Savings and Internal Lending Communities

SLGs Savings and Lending Groups

SMS Short Message Services

VICOBA Village Community Banks

VSLAs Village Savings and Loans Associations

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LIST OF FIGURESSECTION 1: LINKAGE BANKING MODELS AND FACILITATION Figure 1: FSP-SLGs NGO supported Linkage Model ........................................................................................................................5

Figure 2: FSP-SLG Linkage Model .............................................................................................................................................................6

Figure 3: FSP-NGO-SLG Linkage Model ................................................................................................................................................. 7

Figure 4: NGO supported Linkage Model in Uganda .....................................................................................................................9

Figure 5: Depositing using the mobile platform ........................................................................................................................... 13

Figure 6: Withdrawing using the mobile platform ........................................................................................................................14

Figure 7: Value of Savings at Share-out .............................................................................................................................................16

Figure 8: An SLG member’s new house under construction ...................................................................................................16

SECTION 2: GROUP MEMBERS’ EXPERIENCES WITH LINKAGEFigure 1: Gender distribution ..................................................................................................................................................................23

Figure 2: Age distribution ..........................................................................................................................................................................23

Figure 3: Education distribution ............................................................................................................................................................24

Figure 4: Sources of income ....................................................................................................................................................................24

Figure 5: Alternative savings mechanisms used by group members ................................................................................25

Figure 6: Reasons for becoming a group member ......................................................................................................................26

Figure 7: Unmet expectations of group members ........................................................................................................................29

Figure 8: Group Members with unmet expectations per type of linkage ..........................................................................29

Figure 9: Unmet expectations per type of linkage ...................................................................................................................... 30

Figure 10: Main advantages of linkage ................................................................................................................................................34

Figure 11: Main advantages of linkage per type of linkage ........................................................................................................35

Figure 12: Disadvantages of linkage as perceived by group members .................................................................................35

LIST OF TABLES

Table 1: Description of the quantitative sample ..........................................................................................................................2

Table 2: Linkage Banking Partnerships ............................................................................................................................................8

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PREAMBLE

Financial Sector Deepening Uganda (FSDU) and Financial Sector Deepening Zambia (FSDZ) commissioned studies on linkage banking with the objective of:

¡¡ Determining the demand for linkages and the type of services required by SGs and SG members¡¡ Exploring the benefits of, and the risks related to different linkage types¡¡ Identification of any risks to other benefits that SGs offer to their members that may arise out of linkage

banking practices¡¡ Describing good or best practices in terms of linkage implementation (if necessary, per type)

The report presents findings from two studies, conducted at different times, to fulfil the objectives above. Because of the significant difference in the timelines of which these two studies were conducted, findings from the two studies are presented in two separate sections. The objective of combining the two studies, while clearly demarcating the sections is to comprehensively present in one document, both demand and supply sides of linkage banking while also cognisant that the two studies were conducted at significantly different times.

The first section of this report explores, the supply sides of linkage banking and highlights, among others; linkage banking models applied in Uganda, comparative analysis of such linkage models, as well as best practices in linkage facilitation. The second section explores the demand side of linkage banking and highlights, among others; dynamics and demographic characteristics of savings groups, drivers of group memberships, expectations of members, requirements of linkage to FSPs, perceived impact of linkage and challenges experienced with linkage to banks.

FSDU and FSDZ acknowledges the efforts of the consultants who undertook this study. These consultants were from Friends Consult Limited, Ipsos Uganda and Yakini Development Consulting. Similarly, NGOs facilitating linkage banking in Uganda, Savings and Lending Groups (SLGs) and Financial Services Providers (FSPs) who provided information for this study are acknowledged.

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EXECUTIVE SUMMARY

This report is of a study on linkage banking, commissioned by FSDU to enhance understanding of relationships between Savings and Lending Groups (SLGs) and Financial Services Providers (FSPs). The report highlights both demand and supply sides of linkage banking.Key findings of the supply side of linkage banking study are presented below.

¡¡ There are mainly two linkage banking models used by the FSPs in Uganda to provide formal financial services to the SLGs. These are;

i. FSP-SLGs with active support from NGOs Linkage Model: In this model, the formal financial services providers (FSPs) link up with the mature savings and loan groups (SLGs) that have been formed and supported by an NGO for a period of up to 2 years. This is a savings-led model, in which the NGOs train the SLGs on how to grow their savings before accessing credit services from the FSPs.

ii. FSP-SLG Linkage Model: The FSP provides financial services to SLGs that were either purposely formed by their staff or self-formed. This linkage model is mostly credit-led with the FSPs particularly form-ing groups to access credit with savings being a collateral requirement for the SLGs to access credit.

¡¡ The FSPs in both models aim to pursue their key institutional objective of increasing profitability and overall business performance. In model 1 (NGO supported linkage), this is achieved through increasing access to low cost funds which is intermediated, and income earned from the lending operations. On the other hand, Model 2 being credit-led means that the FSPs easily achieve their key interest of improving profitability by providing credit to the groups thereby earning credit income in the form of interest on loans. ¡¡ The SLG members also achieved their interests in the linkage relationship which for model 1 are mainly

safety of funds, earning interest income on savings balances (although may indicated it was a small amount) and being able to undertake personal development plans. For model 2, the key interest is increased access to more working capital funds for their individual businesses which was possible through the credit facilities. ¡¡ The NGO’s interest of contributing towards the socio-economic development of the marginalised commu-

nities was achieved in model 1. Interest of NGOs was achieved since the linked groups recorded increasing savings balances due to the increasing cash safety and better money management. ¡¡ The mobile banking platform has greatly helped the groups to address the cash safety challenge since

cash holdings in the group cashboxes are now minimised as cash surpluses are transferred into the group account with the FSP.¡¡ The Know Your Customer (KYC) requirements were rather stringent under model 1 where many stake-

holders were involved and as such needed the SLGs to be separate entities compared to model 2 where the groups were mostly formed by the FSPs to access credit. ¡¡ The development of the products under model 1 was collaborative with the FSPs and NGOs working

together so that the interest of the SLG members are clearly addressed during the product development processes. The end result of this process was a savings product embraced by the groups that had the following features;

i. No minimum account opening amount ii. No minimum balance requirements iii. At least one free weekly withdrawal was permitted per groupiv. No charges on cash depositsv. Minimal monthly charges ranging from UGX 0 to UGX 2,000vi. One free monthly bank statement

¡¡ On the other hand, model 2 groups accessed a credit product that was developed by FSP with little direct input from the groups if at all there was any. Some of the credit product features were:

i. Loan amounts that range from UGX 300,000 up to UGX 10 million per membersii. Interest rates that average 24% p.a.

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iii. Flexible repayment periods depending on capacityiv. Group guarantee so no need for collateral

¡¡ The linkage banking relationship has clearly resulted in significant changes in the livelihood of the SLG members. The envisaged and achieved impact of linkage under model 1 include: cash safety, increased savings, improved livelihood. The impact of linkage on the groups under model 2 include; access to higher loan amounts and empowerment of women.¡¡ To ensure successful linkage of the informally served or financially excluded groups, it is important that

the promoters of the linkage relationship pay keen attention to the following: i. Formation and nurturing: The groups should be nurtured for not less than one year to enhance co-

hesion amongst the members. During the nurturing period, the groups should be trained in financial literacy, bank literacy and money management skills amongst other areas.

ii. Suitable Products: The FSPs have not mainly targeted the informally served or financial excluded market segment and as such it is important that specially tailored products are developed.

iii. Mobile Phone Platform/ Connectivity: Distance to the FSP is a significant barrier to improving access financial services for the excluded communities. To this end, a fully functional mobile phone plat-form is critical to enhance success of any linkage relationship.

iv. Continuous Support: The presence of the Community Based Trainers (CBTs) who provide continuous support to the group members is important for the sustainability of the groups.

Key findings of the demand sides of linkage banking study are presented below.

¡¡ SG members interviewed were most likely to be female (68%).However, there was a significant difference between linked and non-linked groups in the sense that the linked groups were more likely to be male (34%) as opposed to females (27%). Most (76%) of the group members interviewed got money from farming activities (i.e. selling crops, livestock or by-products) whilst 56% earned money from running businesses trading in non-agricultural products or providing services (e.g. hair dressing or mechanic services, etc.).¡¡ The most significant reasons for members to join their respective groups were savings and borrowing.

Borrowing was the second most important reason for members joining groups. Although the value gained from belonging to SGs was clearly illustrated, almost half (43%) of respondents believed that not all their expectations of joining a group have been met. Most members (29%) with unmet expectations perceived the pool of savings smaller than expected. Members from groups linked to mobile money services were significantly more likely to have unmet expectations than other linked group members.¡¡ The ultimate decision regarding linkage was left to the group although the suggestion often came from

representatives of facilitating agencies. Although safety of their savings was used to sell linkage to group members, no evidence was found in this research of cases where groups actually lost their money as a result of theft.¡¡ Focus group participants from groups who were approached but refused linkage cited, among other

reasons: fear of fraud and lack of trust, fear of not being able to borrow from their savings once it is in a bank account or wallet, bank charges, and fear of technology ¡¡ Dormant bank accounts are due to inadequate savings, low interest on savings, proximity to the bank and

related opportunity costs (e.g. transport costs), and bank charges and fees as the main reasons for not using their accounts.¡¡ Most members of linked groups (69%) were of the perception that linkage changed the way the group

functioned. The most significant disadvantage was perceived to link to the time it took to access their savings.

A conclusion is drawn that financial service providers who are engaged in linkage banking are now adopting the NGOs facilitated model because it is cost saving. Whereas demand for linkage are prompted by facilitators (in the case of savings-led linkage) and representatives of FSPs (in the case of credit-led linkage), groups made the ultimate decision concerning linkage themselves. Facilitating agency and FSPs, emphasized offering protection and safety of the groups’ savings.

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INTRODUCTION

INTRODUCTION

BackgroundSavings Groups (SGs) are self-selected, member-owned community-based groups that provide access to basic financial services and social support to its members. Members save together, and they can access small loans from their accumulating pool of savings to improve their living conditions. SGs also offer access to a social fund which acts as a form of insurance. Members can draw from the social fund and use such drawings to cover emergencies or when they experience critical gaps in their cash flow. Members’ contributions are a small fixed amount agreed upon collectively in the group. Although members have to pay back loans obtained from the savings group with interest. Money obtained from the social fund is not repayable. SGs, therefore, can meet the financial needs of those living in areas too remote to easily access formal Financial Service Providers (FSPs) and who are often too poor to be able to afford service charges of formal FSPs such as banks and microfinance institutions.

However, as SGs mature and grow, member demands also grow and often exceeds the offerings of the SG. Once it ceases to meet its intended purpose, the threat is that the SG could be phased out and ceases to exist. The security in terms of the amounts of cash they are handling also becomes more critical as the savings pool grow. As groups mature, they often seek the security offered by formal financial institutions (e.g. bank accounts) for their growing savings. In some cases, Financial Services Providers (FSPs) seek linkage to SGs and in other cases, NGOs facilitate linkage of SGs to FSPs, hence linkage banking.

Linkage banking refers to the process through which informal savings groups can access products and services from formal Financial Service Providers (FSPs)1. Through linkage banking, grassroot institutions like Village Savings and Loans Associations (VSLAs), Savings and Credit Cooperative Societies (SACCOs), Accumulated Savings and Credit Associations (ASCAs) and Rotating Savings and Credit Associations (ROSCAs) can tap the benefits that come with the services offered by the FSPs while maintaining their independence as local institutions.

Savings groups that have been linked to formal financial institutions realise significant benefits which include; safe storage of savings, increased sources of borrowing, financial education/capacity building, better remittance services, and reduced costs of transactions2. Taking an example of the Banking on Change (BOC) project implemented in Ghana, Kenya, Tanzania, Uganda and Zambia by Care International, Plan International and Barclays Bank; linkage led to the creation of the VSLA smart account that realised 4,397 active accounts3 in the five countries. This linkage initiative resulted in increased access to banking services for the poor, increased savings mobilisation and other benefits to groups4. Linkage banking therefore provides an avenue through which challenges and rigidities with informal groups can be addressed hence enhancing financial inclusion. On a different note, linkage practitioners posit that SGs struggle and may collapse, once linked and provided credit at very early stages. For this matter, facilitators have to be cautious. Also, FSPs continue to lend to individuals in the groups, using the group as an entry point, thereby compromising the advantages that would accrue from lending to a group.

Both the Financial Sector Deepening Zambia (FSDZ) and Financial Sector Deepening Uganda (FSDU) believe that SGs are an efficient and effective means to substantially increase the number of households accessing financial services especially in rural areas and amongst low income households. Also, linkage banking possesses benefits and challenges in their structure and implementation, hence a need to understand the various models applicable as well as models that provide the highest benefits to both informal groups and formal financial institutions. In order to better understand and respond to the demand for linkage between SGs and formal FSPs, and also to understand the relationships between Savings and Lending Groups (SLGs) and Financial Services

1 The state of linkage report- CARE, Plan, Barclays 2016

2 Financial linkages: Bridging the formal and informal sectors: CARE International

3 Banking on Change Phase 2 Final Report February 2016

4 Charter webinar presentation – Care International April 2015

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Providers (FSPs). FSDU collaborated with Financial Sector Deepening Zambia (FSDZ) and commissioned a study of linkage banking in Uganda.

Objectives of the StudyThe main objectives of the study were four pronged, namely:

¡¡ Determining the demand for linkages and the type of services required by SGs and SG members¡¡ Exploring the benefits of, and the risks related to different linkage types¡¡ Identification of any risks to other benefits that SGs offer to their members that may arise out of linkage

banking practices¡¡ Describing good or best practices in terms of linkage implementation (if necessary, per type)

Two consultancy firms, hired at different times, conducted the linkage banking study. Each firm addressed specific objectives of the study. The first study, presented in the second section of this report was conducted by Ipsos Uganda and Yakini Development Consulting. This study primarily addressed the objectives of:

¡¡ Determining the demand for linkages and the type of services required by Savings Groups (SGs) and SG members¡¡ Exploring the benefits of, and the risks related to different linkage types¡¡ Identifying risks to other benefits that SGs offer to their members which may arise out of linkage banking

practicesThe second study, presented in the first section of this report was conducted by Friends Consult Limited and focused on addressing the last objective of documenting models of linkage banking, linkage types, as well as best practices of linkage facilitation.

Methodology Various methodologies were adopted. In the first study. A scoping mission to organizations engaged in linkage banking was conducted at the initial phase. After completion of the scoping mission an exploratory study, focusing on SGs was adopted. The exploratory research was conducted through:

¡¡ 13 Focus groups discussions (FGDs) with group members and group leaders. FGDs were meant to inform the quantitative survey design ¡¡ A quantitative survey with 750 group members¡¡ In-depth interviews with group leaders and group facilitating officers and/or trainers

The focus of the research was reduced mainly to determine the demand for linkages and the type of services required by SGs and SG members and exploring the benefits of, and the risks related to different linkage types. Data collection was done during June/July 2017 and achieved 13 focus group discussions and interviews with 857 group members using a structured questionnaire. Data was collected using mobile phone technology. Of the quantitative sample reached, 74% of the members interviewed were linked whilst 26% were members of spontaneous groups, which were not linked. Table 1 below presents details of the sampled groups.

Table 1: Description of the quantitative sample

Linkage status of the group Number of groups selected

Number of group members interviewed

% of quantitative sample

Link to commercial bank only 32 277 32%

Linked to a commercial bank and a mobile money service provider

13 105 12%

Linked to a mobile money service provider only

12 121 14%

Linked to commercial banks but accounts dormant

15 132 15%

Not linked - refused 8 61 7%

Not linked – never approached 18 161 19%

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The following types of SGs were considered in the research:

¡¡ Accumulating Savings and Credit Associations (ASCAs) ¡¡ Village Community Banks (VICOBAs)¡¡ Village Savings and Lending Associations (VSLAs)¡¡ Savings and Internal Lending Communities (SILCs)

Rotating Savings and Credit Associations (ROSCAs) were not considered as these do not accumulate savings - pooled contributions are paid out at every meeting to members of the group alternating between members. In general, attributes of the groups considered in this research is summarized as follows:

¡¡ Members are self-selected – groups have between 10 and 25 members and they meet on a monthly, bi-weekly or weekly basis.¡¡ A management committee is selected by the members on an annual basis. This committee is usually

comprised of three members – a chairperson or group leader, a treasurer and a secretary.¡¡ Attendance of meetings is compulsory. ¡¡ All transactions are transparent and conducted in front of the members and with dedicated record keeping.¡¡ Members contribute to the savings pool at every meeting. Savings are kept in a cash box with three keys

(usually kept by the management committee members) to ensure security. Pay-out of member shares/savings usually happens annually or at a time agreed upon by the group. ¡¡ Group members borrow from the pooled savings and loans are approved by group members. Members can

borrow 2 to 3 times more than the amount of their total savings. Loans attract interest and interest rates are determined by members.¡¡ Group members contribute a fixed amount to a social fund which acts as informal insurance. Members

can apply for money from the social fund in cases of emergencies resulting in a member’s cash flow gaps. Money obtained from the social fund is not repayable.

In the second study, Friends Consult Limited generated a list of FSPs engaged in linkage banking and purposively selected the institutions to be interviewed. The criteria for selecting the FSPs was the period of engagement in linkage banking with the preference being FSPs that had linked groups for the longest period of time. Key Informant Interviews were then conducted with key staff of the 5 FSPs and the 3 NGOs that worked with Financial Sector Deepening Uganda (FSDU) to facilitate linkage. These NGOs include CARE International (Care), The Aga Khan Foundation (AKF), & Catholic Relief Services (CRS). In addition, interviews were also conducted with staff from the 3 locally based NGOs which regularly interfaced with the SLGs. FGDs were also conducted with members of 9 SLGs that had been linked to FSPs.

Structure of the report Section 1 presents linkage banking models and facilitation. Savings led and credit led linkage banking models are described and comparative analysis of these models are presented. Best practices of linkage banking are also highlighted. Section 2 presents issues related to the demand side of linkage banking. Group expectation of linkage, linkage decisions, requirements of linkage and perceived advantages of linkage are highlighted. The report ends with a general conclusion derived from the two studies.

INTRODUCTION

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SECTION 1: LINKAGE BANKING MODELS AND FACILITATION

OVERVIEW OF LINKAGE BANKING MODELS

Access to Financial ServicesAs articulated in the National Financial Inclusion Strategy 2017-2022, financial inclusion is the process of ensuring access to timely, affordable, and adequate financial services to help the poor people raise their incomes, accu-mulate savings and better cope with shocks to their income. Improving access to appropriate financial services for the poor population has often resulted in enhanced welfare. The end goal of financial inclusion is therefore not just having more people with accounts, who are making transfers and are getting loans; rather it is ultimately about reducing poverty and enhancing the economic security of families through usage of affordable financial services.

The FinScope 2013 study established that financial inclusion (accessing both formal and informal services) in Uganda improved over the years from 57% in 2006 to 70% in 2009 and 85%5 in 2013. This improvement in financial inclusion is significantly attributed to the increased usage of informal financial products and services which increased from 60% in 2009 to 74% in 2013. Similarly, the proportion of the adult population accessing financial services grew from formal institutions (banked and non-bank formal) also increased from 28% in 2009 to 54% in 2013 largely due to amongst other factors, the use of mobile money transfer services.

The previously high financial exclusion levels in Uganda reflected the general dynamics of the country’s economy, which left rural and other low-income people lacking financial services in the last three decades. The economic breakdown of the 1980s caused many banks and financial institutions to close upcountry branches. The closure of branches left rural and other poor people in Uganda without formal financial services. In the early 1990s, several NGOs and other aid organizations started developing some form of micro credit in their bid to alleviate poverty through a social agenda. At about the same time, a few specialized MFIs also started operations, mainly delivering micro credit backed by compulsory savings used as collateral substitutes. In addition, the promotion of the informal groups like VSLAs, ASCAs and ROSCAs by the NGOs also contributed significantly in addressing the issue of financial exclusion especially in the rural areas. As the informal groups continued to grow, they primarily encountered two different kinds of challenges:

a High liquidity: the groups mobilised high savings volumes resulting in high liquidity levels and therefore need a secure place to keep their funds to manage risks like robbery.

b Insufficient loan funds: As the savings group grew, demand for loans outstripped available cash needed to meet their individual members’ business and social cash requirements.

On the other hand, the formal financial institutions mainly focused on serving clients in the urban and peri-urban areas largely due to various reasons:

1. Sustainability considerations: the lack of a critical mass to sustain delivery of services limited options for branch networks in rural and remote areas and the FSP could not breakeven.

2. The high cost of delivering financial services to the poor/ low income rural people, makes services expen-sive for clients and less attractive to financial institutions.

3. Unsuitable products for the segment (the poor/ low income people, especially in rural areas where farm-ing/ agriculture is predominant)

4. High transaction costs to users – transport to bank, service fees, time it takes to draw money from the institution.

5. Discomfort (by the poor, semi-literate people) about perceived sophistication of banks and inability to speak ‘their language’.

6. Inaccessibility and lack of basic infrastructure in some rural and remote rural areas of the country7. Lack of regular income (on the part of the poor rural populations) to save in order to open and maintain

a bank account. This meant new branches would not breakeven in some localities.8. Lack of collateral and security on loans as required by the financial institutions.

5 Finscope 2013 Study

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LINKAGE BANKING MODELS AND FACILITATION

9. High risk borrowers contributing to high interest rates. The high risk of default resulted in interest rates as high at 36% pa being charged to the informal groups.

The various initiatives by the NGOs to provide financial services to the low-income informally served and financially excluded populations did eventually show they had active financial lives. The cost of delivering financial services could be lowered by leveraging technology to deliver tailored products needed by the groups. To this end, linkage banking was deemed to be an appropriate vehicle through which the limitations to the provision of formal financial services to the informally served population could be mitigated and the FSPs supported to provide financial services to this market segment.

Linkage Banking ModelsThis subsection presents an overview of the linkage banking models adopted worldwide to improve access to products and services from the formal financial services providers by the informal savings groups.

FSP-SLGs linkage with active support from NGOs In this model, the formal Financial Services Provider (FSP) link up with the mature savings and loan groups (SLGs) that have been formed and supported by an NGO for a period of up to 2 years. Presented in the figure below is the linkage model.

Figure 1: FSP-SLGs NGO supported Linkage Model

The NGOs which have a social mission and focus on community development have from their past interventions and interactions identified improved access to financial services as critical to improving the livelihoods of their beneficiaries. To this end, the NGOs form SLGs, train the members for a period of up to 2 years and then link the SLGs with FSPs. The training focuses on areas such as group dynamics, financial education, business skills and linkage bank literacy to ensure the continued sustainability of the groups after linkage. The linkage to FSPs is a result of the recognition by the NGOs of their inability to provide a wholesome package of financial services to the groups given that their speciality is in community development. The NGOs also keep watch and ensure satisfactory functioning of the SLGs even after the linkage and are always available to support both the SLGs and FSPs to address any emerging issues that could drastically affect the linkage relationships.

The FSPs which have the resources and technical expertise to provide higher quality financial services are linked up to the SLGs by the NGOs so that the SLG membership can benefit from this relationship. The support by the NGOs in forming and nurturing the SLGs invariably enables the FSPs to overcome some of the hindrances that had made this market segment hitherto unattractive to them. These hindrances that includes: a lack of critical numbers in the rural areas, high cost of delivering financial services, discomfort of the poor with banks, lack of regular income, and unsuitable products are addressed collaboratively to ensure the groups are linked and are accessing formal financial services. As a result of this linkage, the FSPs access savings, which are low cost funds as well as earn income from their credit operations. The FSPs’ motivation in the linkage is premised on the opportunity to grow their business using the savings group funds which is of low cost. These low-cost funds help reduce on the FSP’s overall cost of capital thereby improving their profitability. In addition, as the groups grow and access credit facilities, the FSP will also earn interest on income further improving their business performance.

NGO & CBOs

FSP SLGs

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The SLGs, composed of between 15 to 30 members normally constitute the poor communities (in some instances bottom of the pyramid poor who live on less than USD 2 per day) who are supported by NGOs in their initiatives to end poverty. As part of their interventions, the NGOs seek to improve access to financial services as a key contributor to ending poverty and to this end form the SLGs to improve household incomes. The NGOs also provide initial support such as stationery and cash boxes to the SLGs. As the groups mature and engage in both group and individual income generating activities (IGAs), the savings grow in volume which necessitates linking with a credible FSP. However, one of the key requirements of these SLGs is normally the need to have low cost savings accounts since they are cost sensitive. To facilitate linkage, the FSPs have therefore had to develop suitable savings products with minimal charges for the SLGs. This linkage model is therefore savings-led, since the focus is to build the capacities of the SLG members to develop a savings behaviour as opposed to accessing credit.

This model has been adopted by CARE, AKF and CRS in linking the various SLGs supported by them. These NGOs partnered with locally based NGOs in their respective areas of operations to nurture and eventual link the SLGs to FSPs that include Barclays Bank Uganda, Centenary Bank, Post Bank and Diamond Trust Bank.

FSP-SLG Linkage ModelThis model has previously been used by micro-finance institutions in delivering financial services to the population segment that was otherwise considered un-bankable. The FSPs provides financial services to SLGs that were either purposely formed by their staff or self-formed. The FSPs have staff who are charged with the responsibility of forming and building the capacities of these groups to enable them access financial services. This linkage model is mostly credit driven with the FSPs particularly forming groups to access credit from which income is earned. The members of the groups are jointly liable for the loan and in the event that there is default, the entire group pays the outstanding instalment. The FSPs structure these groups in such a way that peer pressure would ensure compliance of individual clients in most cases.

Figure 2: FSP-SLG Linkage Model

Owing to their strategic focus as a private sector entity which is largely profit oriented, the FSPs often do not provide adequate resources to nurture the groups over a long period of time. Unlike the NGO supported linkage model, the training and support to the SLGs in this model is often provided over a shorter period of time.

The membership of each SLG ranges from 5 to 100 largely due to the need to ensure efficiency in the operations of the FSPs by serving a number of clients. The membership of the SLGs in this model is therefore often higher than in the NGO facilitated model. The interests of the SLGs, as earlier explained is to access financial services beyond what is often available to them from their group savings. The FSPs are often the key drivers of this linkage process, supporting the group formation and conducting the initial trainings which largely focus on the group dynamics, FSP services and products, FSP group policies and procedures, and group records keeping. In this model, improvements in the SLGs members’ livelihood is largely dependent on how financially literate the individual member is unlike in the NGO facilitated model where the NGOS actively seek to achieve this objective.

This model has been adopted by FINCA Uganda which commenced operations in 1992 providing microfinances services through the village banking methodology. The village banks consist of groups of 10 to 20 low-income entrepreneurs who are provided with credit mainly consisting of working capital to start or grow their businesses. These low-income entrepreneurs have hitherto not been able to access credit from the FSPs largely due to their lack of collateral.

FSP SLGs

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LINKAGE BANKING MODELS AND FACILITATION

FSP-NGO-SLG Linkage ModelIn this model, the NGOs take on the role of a financial intermediary between the FSPs and the many SLGs formed and nurtured by them over a period of time. The NGOs are often socially responsible institutions that seek to achieve their missions of contributing towards community development. To this end, they seek to improve household incomes through enhancing access to finance so that the communities grow their income generating activities. In an effort to access financial resources beyond the SLGs capabilities, the NGOs take on the financial intermediary role and accept the contractual responsibility for repayment of the loan to the FSP. In its intermediary role, the FSP advances the loan to the NGO which assumes the dual responsibility of disbursing and recovering the loans from the groups. This is unlike the first model (NGO supported) in which the NGO’s role is limited to forming and nurturing of the SLGs before the FSP take over to provide financial services.

Figure 3: FSP-NGO-SLG Linkage Model

SLGs usually consists of an average of 12-30 members who are essentially from a homogenous economic or social class and are brought together by the NGO to deal with common problems. The SLGs are then supported and strengthened by the NGOs to become fully functional entities. The group members rotate small pooled savings among themselves as loans within the SLGs. They keep the accounts of such transactions and when they become confident in themselves and their ability to handle larger volumes of credit, they approach banks for more sizeable loans.

This model6 has been used in India to improve access to financial services from the FSPs by the SLGs. In Uganda, this model was previously used by the NGOs during the formative years of the microfinance sector in the 1990s. NGOs like Feed The Children operated a community banking project that adopted this model to enable communities access financial services. The community banking project eventually transformed into a microfinance institution, PEARL Microfinance Limited.

6 Y.C. Nanda, Country Report - India. APRACA-GTZ Regional Workshop on the Linkage Programme: Focus on Implementation Issues, 26-28 October 1994.

NGO & CBOs

FSP SLGs

8


LINKAGE BANKING MODELS APPLIED IN UGANDA

FSP-SLGs Linkage with active support from NGOs

The Linkage Banking ProcessThe 3 NGOs; Care, Aga Khan and CRS adopted the FSP-SLG linkage banking model with active support from NGOs’ model to enhance access to formal financial services for the SLGs. The 3 NGOs partnered with locally based NGOs that had Community Based Trainers (CBTs) stationed in the various communities to support the SLGs. The presence of the CBTs in the communities resulted in continuous support to the SLGs during the nurturing and linkage processes. This approach ensured that adequate attention was given to the SLGs during the mentoring period and any emerging issues were promptly addressed.

The role of the NGO as a well-established organization with strong and respected systems was to establish stra-tegic relationships with FSPs and other key stakeholders in the financial sector. The NGOs also provided resourc-es and guidance to the implementing local partners and SLGs as well as resolving high level issues that emerged during the linkage process. The SLGs were supported in group formation and nurtured to strengthen group cohesion and inculcate a saving culture amongst the members. During the linkage process, the NGOs identified and vetted savings groups ready for linkage and sensitised them on the need to join the financial institution and finally supported the groups to meet FSP requirements.

In collaboration with the NGO/local partner, the FSPs delivered training to the groups in preparation for linkage. The trainings broadly covered benefits to be derived from linkage banking and performance of financial trans-actions using both the manual system and the mobile phone platforms. The FSPs also worked with the Mobile Network Operators (MNOs) to develop a mobile banking platform through which the groups would transact with the FSPs. The FSPs further developed customized savings product based on the needs of the SLGs.

Presented in Table 1 below are the linkage partners for the 3 NGOs that worked to link SLGs to the FSPs.

Table 2: Linkage Banking Partnerships

Non-Government Organization

Local based implementing partner organization

Financial service provider

Status of mobile banking platform

Care International in Uganda (CARE)

¡ South Eastern Private Sector Promotion Enter-prises Limited (SEPLEL) in Iganga

¡ West Nile Private Sector Development Promotion Centre (WENIPS) in Arua

¡ Uganda Women’s Efforts to Save Orphans (UWESO) in Soroti

¡ Ankole Private Sector Promotion Centre Limited (APROCEL) in Bushenyi

Barclays Bank Uganda Limited

Deposit functionality working while withdrawing is not possible

Centenary Bank Uganda Limited

Fully operational enabling both depositing and withdrawing

PostBank Uganda Limited


Opportunity Bank Uganda Limited


The Aga Khan Foundation

CREAM West Nile in AruaDiamond Trust Bank Uganda Limited

Was operating well but after the new simcard cannot load the platform1. The bank has addressed this challenge by using its PayEasy system for the groups to transact.

Catholic Relief Services (CRS)

Caritas Uganda in LiraPostBank Uganda Limited

The software had been fully developed. However, the SLGs had not be trained on how to transact on the system

9


The figure below shows the operationalisation of this linkage model by the 3 NGOs in Uganda.

Figure 4: NGO supported Linkage Model in Uganda

Reasons/drivers for linkage bankingThe drivers for the linkage banking relationship largely depends on the strategic interests of the key parties to the partnership. From the interviews, the drivers for linkage banking under this model can broadly be classified into three, namely: NGOs, FSPs and the SLGs.

A Non-Governmental OrganizationThe main reasons for the NGO support for linkage banking included:

¡¡ Sustainably improving the livelihood of the marginalized communities through increasing their household income by unlocking barriers to accessing formal financial services. Enhancing access to financial services resulted in the poor communities engaging in income generating activities, acquisition of assets and meeting key household needs. The need to realise improvement in household welfare therefore drove the NGOs to support linkage banking relationships. ¡¡ As the SLGs matured, new challenges such as safety of cash in the cash boxes, access to higher loan

amounts and illiquidity challenges especially at the beginning of the savings cycle emerged. The NGOs therefore, supported linkage banking for the groups to address these new challenges.

B Financial Service Provider¡¡ Being private sector entities, the FSPs are inclined to pursue profitable undertakings since that is a key

performance parameter. Linkage banking therefore enables the FSPs to mobilise savings which are low cost funds. The low financing costs result in an overall reduction in the FSPs cost thereby improving their bottom-line. One FSP indicated that the average consolidated savings balances on the SLGs account is UGX 10 billion. This FSP had linked 29,000 groups implying the average balance on each SLG account is approximately UGX 344,000. FSPs generate a significant proportion of their income from credit operations and having these low-cost funds which intermediates greatly enhances its overall institutional perfor-mance.¡¡ Promotion of financial inclusion results in increased clientele for the FSP and therefore an increasing

market share in the Ugandan financial sector. However, whereas the FSP may not yet market its other products to these new clients, this will change in the future as the SLG members graduate into individual

MOU

MNOs

Mobile phone banking

Brick and Mortar

Non Governmental Organizations

Locally based NGO With CBTs

Support Savings group

Financial services

Financial services provider

11


g The signing mandate is all the 3 signatories must sign a withdrawal slip. For the SLG using the mobile platform, the FSPs introduced the 3 E keys which are PINs given to signatories to authorise any transaction on the SLG account.

Whereas the savings products have been well-received by the SLGs, the delay in implementation of the mobile phone platform on the part of some FSPs is hampering usage of the savings accounts especially for the rural SLGs. One FSP tried to address this challenge by operating a mobile van on selected days but the challenge was that not all the SLGs met and transacted on the selected days. This initiative therefore only benefited the groups that met on those particular days.

This linkage model was savings led and as such, the development of credit products wasn’t prioritised very much during the linkage process; however, the demand for credit products is now beginning to be expressed by many groups. To meet this demand, Barclays Bank developed an overdraft facility where the groups are charged an interest rate of 8% p.a on only funds that have been utilized. The overdraft limit depended on the bankings of the SLG, however, one group was able to draw UGX 20 million on this overdraft facility. Upon the expiry of the pilot phase, Barclays Bank started charging commercial rates on the overdraft at a rate of 22.5% pa. The overdraft facility meant Barclays Bank would offer credit to the groups without using traditional collaterals requirements to secure credit facilities.

All the SLGs interviewed expressed satisfaction with the savings product since it enables them to realise all their expressed interests in being part of the linkage banking partnership. The only exception was the lack of a credit product which has not yet been developed by some FSPs. The FSPs are now realising positive results from their savings mobilisation perspective since the group savings are increasing. On the other hand, with the improved security of their savings and increasing savings volumes, the groups will ultimately be in a better position to address their livelihood challenges. This increased access to finances will address the interests of the NGOs which is contributing to the socio-economic development of the communities they support.

The business processes within this linkage bankingThe linkage banking business processes have been classified into two for purposes of this analysis namely; savings account opening processes and the savings account operating processes. For each of these linkage banking business processes, the activities undertaken by different players are described below.

A Savings account opening processesHaving supported the SLGs from formation, the NGOs identify the groups ready for linkage and subject them to a vetting process using the rating approach. If a savings group does not meet the required score, the group is supported to address the gaps with the view of linking them later, however, if the group is mature then it is supported to meet the FSP’s KYC requirements.

The opening of a savings account by the FSPs usually takes an average of 2 weeks according to the SLGs. The key Know Your Customer (KYC) requirements for opening the account include:

i. Registration of the SLGs: FSPs require that the SLGs are registered with the local government author-ities. This registration is done by the Community Development Officers (CDOs) who are based at the various sub-counties. One challenge faced by the SLGs has been the registration fees charged by the CDOs which ranged from UGX 30,000 to UGX 100,000. In areas where the registration fee was highest, fewer SLGs were registered thwarting the linkage desires of many SLGs. In some instances, the sup-porting NGOs intervened to help address this challenge with varying success. In extreme cases, the support of other local authorities was sought who helped prevail upon the CDOs.

ii. Certified Copy of the Constitution: The FSPs require the SLGs to present a true certified copy of the SLG constitution as opposed to photocopies of the same. Whereas the SLGs were more comfortable with providing photocopies, the FSPs rejected them which oftentimes further delayed the account opening. The certification which is done by the CDOs also results in a fee being levied to the groups.

iii. National Identification Documents: A common agreement of what constituted an acceptable ID for the account signatories present a challenge since many often had varying documents which in most cases where not acceptable to the FSPs. This was, however, solved with the issuing of the National IDs by the government.

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iv. Attendance list and certified resolution to open a savings account: Whereas the FSPs required the CDOs to certify the resolutions authorising the opening of an account, the CDOs expressed reserva-tions arguing that they had not attended the SLG meetings, making them incompetent to certify the same. This particularly provided a significant challenge given that the CDOs cannot practically attend the many SLG meetings. The NGOs therefore sought to have either a lawyer or their official certifying the resolutions as a stop gap measure.

v. Introduction Letter from the Local Councils: This was a requirement that was easily got by the SLG members and did not present any challenges at all since most of the members are bonafide resi-dents of their various locations.

vi. Passport size Photographs: The 3 signatories are required to present passport size photographs to facilitate account opening. The FSPs have supported the SLG with the requirement by taking their photographs during the account opening.

Once all the KYC requirements have been put together, the FSP officer guides the SLG members in duly filling in the savings account opening application form for submission to the FSP. Another factor that causes the delays in opening an account has been the inconsistency between the signatures on the national IDs and the account opening forms for some of the signatories.

B Savings account operating processesThe SLGs presently operate their savings accounts either using the manual systems or the mobile banking platform. The SLGs that are close to the bank branches often undertake their transactions manually while the distant rural based SLGs usually use the mobile banking platform. However, all the SLGs physically withdraw cash from the FSPs during the share out periods because of the significant amounts. It is worth pointing out that the rural groups that have not been placed on the mobile platform are still facing challenges such as the high transport costs to the FSPs which has affected the regular deposits into their accounts as they try to minimise this expense. This adversely affects the FSPs’ stated interests in linkage banking of increased savings mobilisation.

Cash DepositsUpon completing the weekly transactions, SLG members determine whether the cash balances are small enough to be kept in the cash boxes. In the event that the amounts are significant, the surplus cash is handed over to a group executive to deposit into the group account with the FSP. For the SLGs that are not connected to the mobile platform, an executive member is tasked to go to the nearest bank branch to deposit the surplus funds. On the other hand, for the groups that are connected to the mobile banking platform, the cash is deposited on the group phone at the local mobile money agent after which the cash is pushed into the SLG savings account with the FSP. FSPs provided phones to some groups. In groups which were not given phones, members contributed UGX 1,000 per person to buy a phone. In both cases, the 3 account signatories receive short message service (sms) notifications once the accounts have been credited. Often, the chairperson, secretary and treasurer were the account signatories. These three received messages in their individual phones and would then enter pin numbers, as a way to authorize a transaction.

The regular cash deposits have particularly been key in addressing the challenge of surplus cash safety that the groups previously faced. The use of the mobile platform has also enabled particularly the distant groups to save on the high transport costs to the FSP which averaged UGX 15,000 for every weekly deposit. In addition, the person transacting on behalf of the group for particularly the rural groups often times due to the travels to the FSP in the absence of the mobile platform spend the greater part of the day on this errand. However, where the mobile platform is used, this transaction is undertaken in a few minutes.

The cash deposits at the mobile agents onto the group mobile wallet is free but the SLGs are charged to push the cash from their mobile wallets to the accounts with the FSP. The transaction charges are similar to those charged by the MNOs to their other customers. The members were comfortable with the charges that ranged from UGX 1,000 to UGX 2,000 depending on the amount deposited. This charge is certainly lower than the average transport costs incurred to transport a member to physically deposit the group funds.

13


Figure 5: Depositing using the mobile platform

Cash WithdrawalsCash withdrawals are undertaken by the 3 signatories who must all be physically present at the FSP for the manual systems or enter their individual authorisation PIN for the mobile phone platform withdrawals. Cash withdrawals during the share-out days are done physically given the large amounts involved. All physical cash withdrawals are only authorised after completion of the withdrawal slips that are duly signed by all the 3 signatories.

Cash withdrawals on the mobile phone platform are initiated by the member in charge of the group phone after agreement on the amount to be withdrawn. The 3 signatories receive sms notification of the proposed transaction and they are required to authorise the same by entering their respective PINs. Once the cash has been pulled into the mobile wallet, the SLG then accesses their funds from the mobile money agents in their various localities. One key challenge expressed by the members was the low cash floats the agent’s hold which in some instances result in cash withdrawals being completed over 2 days since the alternative is incurring transport costs to distant agents in larger town centres. The groups are charged standard rates to withdraw cash from the mobile money agents with the maximum being UGX 49,000 for withdrawals of between UGX 4 to 7 million. The low cash holdings notwithstanding, the mobile money agents are well spread across the geographical areas where the SLGs are located. As an additional security measure, the group mobile phone is always kept in the cash box along with other group stationery. The cash box is locked using three padlocks. Three different members of the group are appointed to keep keys of the cash box. To initiate and complete a transaction, a group would need at least 6 people. These 6 people are the key holders and 3 signatories.

The cost of cash withdrawals from the FSP is particularly exorbitant for the rural groups amounting to an average of UGX 45,000 for all the 3 signatories who have to spend the greater part of the day undertaking this transaction.

The mobile phone platform enables the SLGs to address challenges of high transport costs to the FSPs and cash safety along the way. The SLGs deposit and withdraw cash from their accounts right from their respective locations using their mobile phone. Much as the mobile phone platform is very critical for the success of linkage banking especially for the rural poor, the implementation of the platform in the different financial institutions is at varying stages with majority not fully operational. The only full operational function is the depositing of cash into the bank account.

During the study, it was established that one FSPs consolidated its operations by closing some branches and transferring the accounts to a branch further away from the groups which resulted in an increase in the transport

Mobile money agent

(converts electronic

money to cash and vice versa)

Mobile money agent

(converts electronic

money to cash and vice versa)

FSP MNO

2. Treasurer deposits on bank

account from mobile wallet

1. cash deposited on

mobile wallet by treasurer at the

MM

3. Treasurer and signatories

receive SMS alert on depositing

Signatory 2 Signatory 1

Signatory 3

14


charges per signatory from UGX 6,000 to UGX 15,000. This FSP has not yet fully operationalised the mobile phone platform with only the cash deposit functioning to the groups’ satisfaction. Cash withdrawals have to be done manually which affects the frequency of account utilisation by the SLG. This underscores the need to implement the mobile phone platform if the linkage banking is to be sustainably successful in meeting the needs of these unique clients.

Figure 6: Withdrawing using the mobile platform

The performance of the credit product is very low because many of the FSPs are yet to develop a customized loan product for the groups and even for the financial institution that has come up with customized overdraft, the uptake is low because most groups have not yet gained confidence to borrow. Groups fear that banks may take their property in case of default.

Due to modest literacy levels of the communities targeted for linkage banking, training on the platform needs to be done several times. This should be complemented with providing Training of Trainers (TOT) for local NGOs and CBT to provide ongoing support to the savings group.

Partnerships management and their dynamicsThe NGO facilitated model is characterised by partners working together to address a problem while at the same time meeting their respective institutional goals for sustainability purposes. To ensure that the partnerships benefit all the participating organizations, there is need to formalize the relationships by signing MOUs between different partners clearly specifying their respective roles and responsibilities. In addition to the tripartite arrangements involving SLGs, FSP and NGO; FSPs need to effectively manage their relationships with the mobile banking platform providers while the NGOs also have to handle the relationship with the local based implementing organization and funding organization. The study revealed incidences of partnership related challenges including:

¡¡ Business oriented organisations (FSPs and MNOs) may take decisions including terminating services or consolidating branches without considering the impact on such decisions on communities being targeted. Decisions such as these can be detrimental to the whole linkage banking initiative.¡¡ The high workload of the FSPs staff dedicated to the linkage banking initiative meant that some SLGs were

not adequately supported. In one extreme situation 2 FSP staff were tasked with covering over 500 SLGs. The NGOs staff could not provide the necessary support given their technical knowledge limitations. In some cases, it appears the FSPs did not provide adequate resources particularly transport to enable their staff cover all the linked SLGs.

1. Treasurer initiates

withdrawal

3. Pull money from account after approval

by 3pin4. Widthdraw Cash

2. Request for and

subsequent approval by 3

signatories

Signatory 3 Signatory 2 Signatory 1

FSP

MNO

Treasurer

Mobile Money agent (converts electoronic

Money to cash and vise versa

15


¡¡ Mobile banking service providers failing to deliver on time or even abandoning the project along the way.¡¡ Underestimating the period for the linkage banking by the funding organizations resulting in closing the

project before the mobile banking enabler was fully operational. The role of the NGO was also instrumental in mediation and engaging the parties to come up with workable solution because they clearly knew the needs of the ultimate beneficiary of linkage banking.

Key success factors for the NGO facilitated model'' Nurturing of the SLGs for a period of approximately 2 years (2 share-outs) is critical for the group’s

longevity since it enhances cohesion amongst the members. The trainings undertaken during this period also contributes significantly towards the appreciation of the benefits of saving and investment in Income Generating Activities (IGAs). The groups that were nurtured over a period of 2 years tend to save higher amounts than groups nurtured for over a shorter time.

'' Implementation of mobile phone banking is very important for the sustainability of linkage banking since it drastically reduced transaction costs as well as the time taken to conduct a transaction while also addressing the SLG interests which include cash safety and access to higher loan amounts.

'' Obtaining the buy-in of local government is also important because the local government is responsible for issuing certificate of registration to the groups and certifying the copies of the group bylaws and certificate of registration. These are key requirements for opening account with the FSP.

'' The presence of the Community Based Trainers (CBT) in the communities resulted in availability of continuous support to the groups through the linkage processes. The SLGs were also more comfortable with the CBTs since CBTs are members of their communities.

Challenges encountered in NGO facilitated Linkage Banking modelDespite the success and benefits registered, some partners in the NGO facilitated model encountered numerous challenges that included:

¡¡ Delay in operationalising the mobile phone platform: For particularly the rural groups, the delayed imple-mentation of the mobile platform has affected the success of the linkage relationship. The successful linkage is heavily dependent on the functionality of the mobile platform. One FSP tried to use a mobile van that would visit the rural areas on a weekly basis but this registered limited success since the SLG meetings are not scheduled on the same day of the week on which the van would visit the village. ¡¡ Limited collaboration with other key stakeholders: Key actors like the local government officials who are

mandated to legally register the SLGs are not fully engaged to have a full appreciation of the roles that linkage banking plays in addressing challenges that relate to community development. LGs appreciation of the challenges will ensure that some aspects like the group registration fees are harmonised and the groups charged affordable amounts. In addition, they will without any hesitation, certify some critical KYC documents since these groups are known to them and the members are bonafide residents of the various sub-counties.¡¡ Resource constraints: In some instances the NGOs encountered challenges of adequate resources both

financial and personnel related to nurture all the SLGs through the linkage processes. ¡¡ Limited training in the use of the mobile technology: Some FSP did not put emphasis on adequately

training the locally based implementing organization and the community-based trainer on the use of the mobile platform. Since most members of the savings groups are either illiterate or semi illiterate, they need someone close-by to support them in case they forget how to use the phone.

Impact of linkage banking on the groupsLinkage banking had a significant impact on the communities as articulated by members of the nine focus group discussions conducted in three sub-regions of the country. Interviews were conducted in Busoga, Lango and West Nile. The impact of linkage banking on the SLG membership include:

i. Cash safety: Cash surplus to the group requirements is deposited into the group account thereby lim-iting the volumes of cash held in the cashboxes. Previously, the members would either keep the cash

16


in the cash boxes or distribute the cash amongst members as a mitigating measure but incidences of misappropriation by members entrusted to keep the cash adversely affected the SLGs. Robberies and cash misappropriations are no longer rampant mainly because of linkage banking.

ii. Increased Savings Volumes: The increased safety of cash has resulted in increasing savings volumes at the group levels. Members can now entrust the groups with large cash amount with the knowledge that it will be available as and when required by them. The figure below shows an upward trend in savings for the groups covered by the study with the exception of one group in Busoga region (Code No3). This particular group encountered a prolonged drought in the area which forced the group to reduce interest charged to member borrowing from 10% to 5% resulting in reduced income available for sharing at the end of the cycle.

Figure 7: Value of Savings at Share-out

Source: Field data

iii. Improved livelihood: The increased access to funds has enabled the groups to improve their liveli-hood by being able to construct better houses, acquire various household assets, pay school fees, expand their income generating activities and cover medical bills amongst others. The Figure below shows a new house being constructed by a member of the Abala Young Farmers Association in Om-baci village, Ulepi sub-county Arua district.

Figure 8: An SLG member’s new house under construction

Year

17


iv. Low uptake of Credit from the FSPs: This linkage model is savings led and as such, the uptake of credit is still low amongst the group members. This could partly be explained by the fact that this model targets mainly the previous financial excluded who have to first build their savings capacity before eventually demanding higher loans amounts than can presently be provided by the FSPs. Incidences of increased credit upgrade has already been reported by some FSPs engaged in this linkage banking.

Overall, this model offers good opportunity to financially excluded population to access financial services from formal financial institutions. The role played by the NGOs is very important in making the FSPs reach out to the groups that would under ordinary circumstances not be attractive to them. This support is also critical in enhancing group cohesion and sustainability of the linkage relationship. The groups were equipped with knowledge in both financial services and income generating activities to enable group access and increase volume of saving.

FSP-SLG Linkage Model

The Linkage Banking ProcessIn this linkage model, the FSPs and SLGs undertake to link directly with limited involvement of any third parties and the FSPs are mostly the key promoters of the linkage relationship. This linkage is credit-led with the FSP seeking to provide access to often higher credit amounts that the group members have under the informal financial services they have been accessing.

Having analysed the needs of the targeted communities, the FSPs approach the existing groups or create new groups and train them so that they can access credit services from them. The support provided by the FSPs include; four weeks’ training in group management & development, product terms and conditions, savings, business planning and management, and credit management including record keeping. The FSPs do not participate in the selection of members to be in a group but rather encourage members to select individuals they deem fit to be in the groups. The group members self-select since they eventually co-guarantee each other after accessing credit from the FSP. As opposed to the savings-led groups that can enrol any member irrespective of the economic status as long as they can save, to be eligible to join a loan-led group, you must have regular business income to meet loan repayments when you access a loan. Potential clients are mobilized through targeted visits, sensitization of existing clients, promotions, sensitization through local leaders, and media advertisement (radio, television and newspapers).

Reasons/drivers for linkage bankingThe drivers for linkage banking under this model can broadly be classified into two categories FSPs and SLGs.

A Financial services providers¡¡ The FSPs sought to improve on their overall business performance by increasing their clientele. To this

end, they supported the formation of these groups so as to advance credit to them. The resultant credit income subsequently contributed to the FSP’s overall profitability.¡¡ Improving access to formal financial services for the informally served communities who constituted the

primary target for this linkage relationship. The informally served are the economically active poor who don’t have the collateral requirements to access credit under the traditional lending methodologies, so this linkage relationship addressed this gap through the group lending methodology in which the members co-guarantee each other.

B The Groups¡¡ The key driver for linkage banking for the groups is accessing higher loan amounts beyond what their

present sources of credit could offer. Linking to the FSPs therefore provided this opportunity which would help them grow their business.

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Products and services offered by FSPsSince this is a credit-led linkage relationship, the key financial product is a group loan product. Prior to accessing the loans, the group members submit loan applications that are appraised by the group executives before such applications are submitted to the FSPs. On approval, the FSP then grants the wholesale loan to the groups who are responsible for servicing the loan as a group and not individually. The product features vary from FSP to FSP, but mainly include:

¡¡ Loan amounts that range from UGX 300,000 up to UGX 10 million per member¡¡ Interest rates that average 24% p.a.¡¡ Flexible repayment periods depending on capacity but doesn’t exceed one year¡¡ No security or collateral requirements because of the group members guarantee each other.

The basic qualifications for the loan include:¡¡ At least 6 months of business existence or activity¡¡ Applicants must be 18 years and above¡¡ Registration with the Credit Reference Bureau (CRB) which is a requirement by the Central Bank for all

formal FSPs¡¡ Some form of identification e.g. national ID, driving permit¡¡ Business with valid trading license¡¡ Monthly instalment covering principal and interest not exceeding 50% of the monthly income

The linkage relationship therefore focusses on mainly addressing the credit needs of the group members’ enterprises as opposed to the NGO supported model that also has aspects of socio-economic development of the communities. This model may therefore not address the needs of the financially excluded communities who may not meet requirements to access the credit facility.

The business processes within this linkage bankingThe business processes have been broadly classified into two; the preparatory activities, and acquisition and servicing of the credit facility.

A Preparatory activities This process involves mobilization of members, group formation, group/member registration, account opening for members and training of members.

The detailed process for preparation to accessing financial services is as follows:

a Mobilization of members: The FSP mobilises potential members through targeted visits, sensitization by existing members, promotional activities, sensitization through local and community leaders, media ad-vertisement (radio, TV and newspapers), and special workshops open to existing members and potential members.

b Group formation: after identification, potential members are encouraged to form small groups of 6 mem-bers with whom they enjoy mutual trust, confidence, and respect and engage in relatively similar econom-ic activities. The small groups of 6 members are combined into a big group comprising of 2-10 small groups that are to be linked with the FSP. The mobilized members are trained on the operations of the group and the FSP activities.

c Group/member registration: eligible members complete individual and /or group registration documents.

d Account opening for members: once 3 small groups are realized, members are notified to attend the first group meeting and are advised to come with all the registration requirements. The credit officer ensures that members understand and submit all the requirements for account opening. The accounts are opened for the individual member not the group.

e Member training: Members are continuously trained on the policies and procedures during the weekly meeting by the credit officers.

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B Acquisition and operating a loan Eligible members may apply for the maximum loan amount under their respective loan levels. The individual loan applications are then combined, and the loan disbursed to the group under the VSLA loan product. The loan application should have the following documents:

¡¡ Individual membership application form together with recent passport photograph¡¡ Loan disbursement schedule¡¡ Legal document as appropriate¡¡ Member visitation form¡¡ Security provision form¡¡ Letter of recommendation from local council¡¡ Loan documentation checklist

The loan application process is as follows: Members submit loan applications to the executive of the small groups for consideration. The loan can only be accepted by the small group of 5 for submission to the big group if the following are met:

¡¡ The applicant is member of the small group¡¡ Member has been regular in attending meetings¡¡ Member has adequate amount of savings to secure the loan¡¡ Member has been visited by other members in the small group¡¡ All the loan applications from the small groups are then approved by the executive of the big group after

ascertaining the members meet all the loan requirements.¡¡ The FSP conducts the appraisal of the loan application¡¡ Loan disbursement is to the group account under the VSLA loan product¡¡ Loan repayment: it is the responsibility of the individual member and/or other members of the small

group and the executive of big group to ensure that loan instalment due is fully paid.

Key success factors for the FSP direct support model'' Homogeneity: It is critical that the membership of the small groups is homogenous in terms of the common-

ality of economic activity. This homogeneity helps enhance mutual respect and collaboration amongst the members which is critical in ensuring the loans are properly serviced.

'' Mutual trust and respect: The disintegration of the small groups affects the entire big group. It is therefore equally important that the members self-select and are properly trained in group dynamics.

'' Quick service turnaround time: The group members tend to seek business loans for financing their working capital requirements. As such the speed of loan processing is of essence in this linkage relationship.

Challenges encountered in the FSP direct support model¡¡ The role of appraising, approval and monitoring of loans is delegated to the members of the group who

may lack the necessary skills to perform that function resulting in loan default by some members. This will negatively impact other good members in the event of default since they would have guaranteed each other. The loss of personal cash can potentially result in the disintegration of the groups before members realize their goals in accessing financial services. ¡¡ The model is promoted by credit officers with tight loan related targets (e.g. amount of loan disbursed and

portfolio at risk) with little or no consideration for promoting savings. To some extent this is a disincentive to the savings product and it may force group members to perpetually continue borrowing without their livelihoods improving.

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Impact of linkage banking on the groupsDespite some limitations in terms of reaching out to the vulnerable population at the bottom of the pyramid that cannot meet loan requirements, the model has registered significant impact to the targeted communities. Such impacts include:

¡¡ Members, especially women, were able to graduate to loans with higher amounts, enabling them to expand their businesses. Business expansions often result in more household income to cover the household needs. ¡¡ Empowerment of women because of contributing to the household income: Women have been able to

participate in household decision making process on what to spend on and how to spend because women have resources from their enterprises to contribute.

Comparative Analysis of the linkage banking models in UgandaA comparative analysis of the two linkage models applied in Uganda is presented below:

¡¡ Both the NGO supported and FSP-SLG linkage models have enhanced access to financial services to the previously informally served or financial excluded population. The NGO supported model, has particularly enhanced access to financial services for the bottom of the pyramid poor (people living on less that USD 2 per day). On the hand, the FSP-SLG model mainly targeted the informally served who were engaged in business and provided other credit to finance their working capital requirements.¡¡ The NGO supported model is savings-led and to address the needs of the SLGs, the FSPs developed

appropriate savings products. The key product features include; no minimum account opening amount, no minimum balance requirements, one free weekly withdrawal is permitted, no charges on cash deposits, minimal monthly charge and one free monthly bank statement. The FSP-SLG model is a credit-led linkage relationship in which the FSP develops a product to address the credit needs of the group members. The credit product features include:�� Higher loan amounts that range from UGX 300,000 up to UGX 10 million per member

�� Interest rates that average 24% p.a.

�� Flexible repayment periods depending on capacity

�� No security or collateral requirements because of the group guarantee system

All the key stakeholders in both linkage models have to a large extent achieved their respective interests. The FSPs in both models seek to improve their overall business performance by enhancing revenues or minimising expenses. In model 1 (NGO supported linkage), this is achieved through increasing access to low cost funds which is intermediated thereby the FSPs earning income from their lending operations to other clients. On the other hand, Model 2 being credit-led means that the FSPs achieve their key interest of improving profitability by providing credit directly to the groups. In both models the group members do achieve their intended objective including safety of money and increased savings for model 1 and access to higher loan amounts for model 2.

A significant difference between the two models is that in the NGO supported model, the FSPs take a considerably longer time to realise their key business interest of improving profitability. This is largely due to the time it takes the SLGs to grow significant savings deposits which are then intermediated. The uptake of credit by the SLGs in model 1 is also low and yet credit income constitutes a significant proportion of the FSPs’ income. In model 2, the FSPs advance credit much faster to the group members thereby earning credit income from their lending operations.

�� Improvement of the livelihood of the linked groups is a stated objective of the linkage relationship in model 1 (NGO supported). On the other hand, this objective is not explicitly stated in model 2 and as such the stakeholders may not work consciously towards achieving this objective.

�� The extended period of nurturing the SLGs (up to 2 years) prior to linkage results in stronger cohesion and sustainability of the groups in model 1 compared to model 2. In the case of mode 2, the training was focused on accessing loans with little attention on broadening financial access resulting high chances of disintegrating after paying the loan.

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�� The KYC requirements were rather stringent under model 1 where many stakeholders were involved and as such needed the SLGs to be separate entities compared to model 2 where the groups were mostly formed by the FSPs to access credit. Under model 1, the KYC requirements included; registration of the SLGs, certified copy of the constitution, National IDs, attendance list and certified resolution to open a savings account and introduction letter from the Local Councils. On the other hand, in model 2, the FSPs focused on the basic requirements needed for one to access credit facilities.

Best practice in linkage facilitation To ensure the successful linkage of the informally served or financially excluded groups, it is important that the promoters of the linkage relation pay keen attention to the following:

i. Formation and nurturing: The groups should be nurtured for not less than one year to enhance cohesion amongst the members. During the nurturing period, the groups should be trained in in financial literacy, bank literacy and money management skills amongst other areas. This is a crucial part of developing a mature, informed customer base, and should be a key element of any linkage initiative. The shorter the period the greater the chances of failing.

ii. Suitable Products: The FSPs have not mainly targeted the informally served or financial excluded market segment and as such it is important that specially tailored products are developed. Features of these products should include: minimal account maintenance fees, no minimum balance require-ments, one free weekly withdrawal and less-restrictive KYC requirements.

iii. Mobile Phone Platform/ Connectivity: Distance to the FSP is a significant barrier to improving access to financial services for the excluded communities. To this end, a fully functional mobile phone platform is critical in the success of any linkage relationship. As established in this study, one of the groups Abala Young Farmers Association attempted to link with one FSP that operated a van but eventually abandoned the relationship. However, when Diamond Trust Bank (DTB) set up their mobile phone platform, this group linked up with the FSPs and it is now progressing well. Other groups in Iganga too have limited the operations of their account due to the challenges with the functionality of the mobile platform which only permits depositing but not withdrawal. FSPs should use mobile phone banking platform as the delivery channel to avoid high transport costs for the groups while transacting. The FSP should also conduct regular follow up on the usage mobile phone banking to ascertain whether groups are comfortable in operating the mobile phones.

iv. Continuous Support: The presence of the CBTs who provide continuous support to the group mem-bers is important for the sustainability of the groups. Given the modest literacy levels of the linked groups, they encounter numerous challenges which require external support to address. The pres-ence of the CBT resource persons therefore comes in handy to address these challenges and ensure the continued proper functioning of the groups.

Having presented linkage banking models in section 1 above, section 2 below will highlights issues related to the demand side of linkage banking.

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23

MAIN RESEARCH FINDINGS

Demographic CharacteristicsSG members interviewed were most likely to be Female (68%). There was a significant difference between linked and non-linked groups in the sense that the linked groups were more likely to be male (34%) as opposed to females (27%). Figure 1 shows gender of the groups.

Figure 1: Gender distribution

In addition, members were likely to be in the economically active age group of 25 to 64 years (76%). Linked group members was significantly younger as 22% of members were in the 15-24-year age group with only 11% of non-linked group members being in this age group. Figure 2 shows age composition of the groups.

Figure 2: Age distribution

32%

68%66%

34%

Linked groups

73%

27%

Non-Linked groups Total

Male Female

% o

f Mem

bers

Linked groups Non-Linked groups Total

% o

f Mem

bers

73%

5%

22%

4%

86%

11%

4%

76%

19%

15 to 24 yrs 25 to 64 yrs 65 + yrs

SECTION 2: GROUP MEMBERS’ EXPERIENCES WITH LINKAGE

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Majority of group members (61%) completed at most primary school levels of education. There was no significant difference between linked and non-linked groups in terms of levels of education. However, non-linked group members were slightly less likely to have received formal education. Figure 3 shows education levels of the groups.

Figure 3: Education distribution

Findings summarized in Figure 4 revealed that most (76%) of the group members interviewed got money from farming activities (i.e. selling crops, livestock or by-products) whilst 56% earned money from running businesses such as trading in non-agricultural products or providing services (e.g. hair dressing or mechanic services, etc.).

Comparing income sources of members of linked and non-linked groups revealed that respondents from linked groups were significantly more likely to get income from farming activities (78%) whilst those from non-linked groups were more likely to get income from non-agricultural businesses activities (59%) and to get income from employment (14%).

Figure 4: Sources of income


% o

f Mem

bers

No formal education Primary Secondary

32%

47%

14%

32%

13%

47%

31%

16%

45%

% of members

Linked groups Non-linked groups Total

Farmers

Business owners

Employed

Pension/Government grant

Dependent

78%70%

76%

55%59%

56%

8%14%

9%

1%

1%0%

2%5%

3%

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SavingsWhen asked about their usage of other savings mechanisms in the 3 months prior to the survey, 96% of group members indicated that they saved somewhere else (i.e. other than with the savings group that was included in the research) during the 3-month period. There were no significant differences between linked and non-linked group members. Notably, 97% of linked group members saved elsewhere during this period, compared to 95% of non-linked group members.Figure 5 provides an overview of other savings mechanisms used during the 3 months prior to the survey, indicating that those who did use another savings mechanism were most likely to use another SG (49%) or a SACCO (33%) whilst 30% saved with a bank or other formal institution.

Figure 5: Alternative savings mechanisms used by group members

Significant differences exist between linked and non-linked group members who used other mechanisms to save. Non-linked group members were more likely to save with another SG or a SACCO than linked group members. In addition, linked group members were more likely to save with formal institutions than non-linked group members – i.e. they were more likely to save with banks or other formal institutions or use the mobile wallets.

Drivers of Group MembershipIt was clear from the findings summarised in Figure 6 that the most significant reasons for members to join their respective groups were: savings and borrowing. Most respondents joined groups to save. Linked group members were significantly more likely than their non-linked counterparts to have joined groups to save for educational fees (38%) as opposed to non-linked members (30%). Also, linked group members were significantly more likely (20%) than their non-linked counterparts (14%) to have joined groups and to ensure their households had money. Being able to borrow money when needed was the second most significant reason for members joining their savings groups as was reported by 54% of the members. Linked group members were significantly more likely than members of non-linked groups to have joined their groups for business purposes. These business purposes include:

¡¡ To grow/expand their businesses (26% of linked group members vs. 18% of non-linked group members)¡¡ To share business ideas (21% vs. 14%)¡¡ To have working capital (20% vs 14%)¡¡ Social reasons – Networking and support

Linked groups

Another SG

SACCO30%

31%27%

30%

17%20%21%

17%19%

17%7%

10%7%

1%0%1%

43%

49%55%

47%

In a wallet on their phones

Bank of other formal financial institution

Friends and family who keeps money safe

At Home

Cooperative

% of members who saved elsewhere

Non-linked groups Total

INTRODUCTION

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Figure 6: Reasons for becoming a group member

% of members

To save money for a future purchase

To save money for school fees

To save money for an unexpected event

To save money for regular purchases

To save money to make sure my household has money

To save money for old age

To be able to borrow

To have working capital

To share business ideas with other people

To grow/expanda my busines

Friends/family are members

Inspiration from other people who were in the group

To get to know other people/socialize

Savi

ngs

Borr

owin

gBu

sine

ssSo

cial


60%

38%30%

36%

32%29%31%

20%17%

19%

20%14%

19%

6%9%

7%

54%56%

54%

20%14%

21%14%

19%

26%18%

24%

4%1%3%

14%18%

15%

26%20%

24%

19%

60%60%

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The following quotes from focus group participants regarding their reasons for joining their respective groups substantiate the findings from the quantitative survey reported above:

“I joined the group because I never had a discipline of saving. When I used to get the small money from selling cassava and vegetables, I would just spend it all at home meeting the basic needs of my family like school fees, buying soap, salt and other things. So, I joined the group to save the little money I get out of the profits I make from my business. I am now able to meet the basic needs of my family and also save the little balance that remains on my profits with the group for future use” Group participant, Arua

“The reason why I joined this group was because of poverty and to learn a good saving culture because in a group it is easier since it is mandatory. I also wanted to understand how people manage to be committed to saving, and that unity that makes them act differently like when there is a problem with a group member… they all unite to support the member, which is not the case when you are not in a group… even relatives may not care about your problems…” Group participant, Gulu

“We admired the elderly people who were saving with “Ngonza Nkugonze” (the group) because they were getting lots of money during the share out period and the money was mounting to one million during share-out for a member.…” Group participant, Kamuli

“My reasons for joining this group were many but majorly being able to save at my own pace without excess pressure. Actually, other village members called us helpless and vulnerable but truthfully looking at where we are and how far we’ve come, one would only regret why they called us helpless. This is mainly attributed to our high levels of growth” Group participant, Ntungamu

“I was motivated by the benefits I saw other members of the group getting for example, the interest on their savings, guarantee of safety of their savings and the ease of access to loans whenever they needed money for a specific cause. I felt I was missing out a lot and yet I could also get to borrow if I needed some money for a cause some day after opening an account. I have seen this come to pass because I have managed to educate my children and even look after my family as a result of being a member of this group…” Group participant, Ntungamu

“to borrow … nowadays if you go to someone’s home to borrow money they would ask you for what purpose are you borrowing and what are you giving as a security …” Group participant, Kamuli

“I have a project of brick laying that am investing in so when I save here I can get a loan and re invest in the project and make much more money …” Group participant, Tororo

“As for me the best thing I have seen about the group is that since we collect some money for emergencies every Sunday in case of sickness this helps a lot” Group participant, Gulu

“I joined this group because it helps us keep money and it also brings a sense of belonging with other people, this group also helps me with some money (loan) because am a farmer” Group participant, Gulu

“I have been able to create new friends within the group which was not the case before.” “There is unity in our group, we all understand each other, and we are always there for one another.” Group participant, Kamuli

It seemed from focus group discussions that although members joined for the purpose to save and borrow to smoothen cash flow, their motivation for membership became more aspirational over time.

“My reason changed from paying school fees to building a house because school fees burdens have reduced am I am now able to save for other activities” Group participant, Kampala

“Even me who used not to have a garden where to plant my food for consumption now I have my own piece of land and am grateful because those days I used to just rent a plot of land for cultivation” Group participant, Tororo

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“I expect to raise some money to buy a plot of land and build my own house because I dream of sleeping in my own house.” Group participant, Kyankwanzi

“I believe that I will be able to take my children to good boarding schools when our savings are shared at the end of the year” Group participant, Kyankwanzi

The value they got from being members of their groups ensured continued membership for many:

“What I value most for being a member of this group is, last year I lost my brother and the group members relieved me from my depression by being there for me and gave me some money to solve some of the needs.” Group participant, Arua

“Being in this group I think it will bring a lot of change in my life because the way I am growing, I will still stay in this group until it grows past this level that it’s in” Group participant, Gulu

“I don’t just get my savings to buy anything; this has improved my savings and has modelled me to control my expenditures and to spend money on things that I have planned for carefully, this has improved my livelihood a lot …that is why I joined this group” Group participant, Gulu

“For me, I have gained a lot because I am now self-reliant which wasn’t the case before. Initially, I was entirely dependent on my husband for every single need like clothing, shoes or even transport but now I don’t have to burden him since I have an income, am able to save and even contribute to the family ‘s basic needs like food, clothing and at times I also support my husband to pay school fees for the children” Group participant, Ntungamo

“The teaching from the groups is what I value. We have trainers who come and give us financial literacy” Group participant, Arua

“Whenever I ask for a loan it is given to me without refusal and I am given time to return the loan and secondly there is no segregation in the group, they treat everyone equal whether being poor, a farmer, firewood seller or a person who goes working for people in their gardens and even if you are a thief they tell you point blank in order for you to change” Group participant, Arua

Expectations of group membersAlthough the value gained from belonging to SGs was clearly illustrated, almost half (43%) of the respondents from the quantitative survey believed that not all their expectations of joining a group have been met. Linked group members (44%) were more likely than non-linked group members (40%) to have unmet expectations.

Most members (29%) with unmet expectations perceived the pool of savings to be smaller than expected. This is mostly because not all members were repaying loans as they should and not all members were managing to save as was expected. Notably, 27% of members with unmet expectations could not borrow the amount they needed whilst 16% could not get a loan when they needed it and 13% could not get access to the social fund when they needed it.

In this regard significant differences between linked and non-linked group members with unmet expectations are as follows:

¡¡ Non-linked group members were significantly more likely than their linked counterparts to: perceive the pool of savings smaller than expected; regard the interest on their savings to be less than expected and, regard the way their savings was kept not to be as safe as expected.¡¡ Linked group members with unmet expectations were significantly more likely: not to get a loan when they

needed one; not to be able to borrow the amount of money they needed and not be able to get money from the social fund when they needed. ¡¡ Non-linked group members were more likely than linked members to have unmet expectations regarding

group procedures and discipline (e.g. training and leadership expectations).

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Figure 7 below gives an overview of group members’ unmet expectations

Figure 7: Unmet expectations of group members

Considering the type of linkage, linked group members with mobile money services were significantly more likely to have unmet expectations than other linked group members. Figure 8 presents findings with regards to the type of linkage.

Figure 8: Group Members with unmet expectations per type of linkage

Members not returning loans/poor savings

Can’t borrow the amount of money needed

Can’t get a loan when need to

Can’t always get money from the social fund

The interest on my savings is lower than expected

The way the savings are kept is not safe

Group not registered

The interest on loans is higher then expected

Withdrawing my savings takes long

Poor leadership

Expectations regarding Training/Activities/Projects not met

It is not always possible to withdraw savings when needed

% of members with unmet expectations

40%26%

30%17%

20%5%

15%7%8%

11%

3%8%

4%1%

2%6%

1%6%

0%7%

2%2%

1%3%

Linked Non-linked groups

39%

50% 54%

Banked only no mobile money services

Banked - with mobile money services

Mobile money services only

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The unmet expectations of linked group members were significantly different when the type of linkage was considered. Group members from groups that were linked to banks only seemed to be more likely not to be able to borrow money when they wanted to and/or not to be able to borrow the amount of money they needed. Also, group members from groups with mobile money services only were more likely not to be able to always get money from the social fund, get the interest they expected on their savings and the training they expected. Figure 9 presents a summary of unmet expectation per type of linkage.

Figure 9: Unmet expectations per type of linkage

Linkage DecisionsThe ultimate decision regarding linkage was left to the group although the suggestion often came from representatives of facilitating agencies who were responsible for training of facilitated groups. Although in some instances the suggestion came from bank representatives who visited the group, most groups indicated that the concept of linkage to formal service providers was introduced by the group facilitator or group leader. This was introduced to groups mainly to ensure that the safety of the group savings, with potential interest on savings was introduced as a secondary reason.

“We decided to use the bank because of security reasons. We do not have a gun to keep and protect people’s money; that’s why we opened an account” Banked group participant, Arua

“The reason why we opened a bank account is because we are sure that with the bank, the money will not get lost in case it does, we can sue it in the courts of law” Banked group participant, Arua

“It is our trainer who introduced the idea to the groups. I heard that money in the boxes of these group was being stolen and that’s why he decided to introduce banking to the groups in our sub county. He told the group members that when this money we are keeping in the box gets lost, it will cause problems to all of us. Then he asked us, ‘what can we do to see that the money is safe?’ At that time, we had no solution but when he came with the idea of saving group money in the banks, he called all the group leaders in our sub county to come to the headquarters to discuss this idea. There are others who accepted the idea but others refused to accept” Banked group participant, Arua

The interest on my savings is lower than expected

It is not always possible to withdraw my savings when I need to

Expected Trainning

Can’t always get moeny from the social func

Can’t get a loan when I want to

Can’t borrow the amount of money I need

% of members with unmet expectations

Banked only Banked with mobile money services Mobile money services only

37%26%

32%

30%19%

9%

13%

10%

26%

6%6%

14%

7%

2%2%

2%2% 5%

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“… we decided to open an account is because we as a group had accumulated too much and it could no longer be kept like in homes so that is the reason why we opened an account to help us keep the money safe…” Banked group participant, Gulu

“What prompted us to go and open an account in the bank is, when we keep our money at home, we don’t get any interest but, in the bank,, we get interest. This made us happy…. Our trainer advised us to open a bank account and since we believe in him so much, we didn’t hesitate” Banked group participant, Arua

Although safety of their savings was used to sell linkage to group members, no evidence was found in this research of cases where groups actually lost their money as a result of theft even though group members often referred to rumours of groups losing their savings due to theft.

“… this is the third year we are keeping our money at home and nothing have happened yet“ Unbanked group participant, Arua

“Although our money had never been stolen here, I believe our money is safer in the bank.” Unbanked group participant, Arua

Decisions on linkage was not always unanimous. However, these situations were resolved when group facilitators provided group members with more information in order to address their fears whilst groups were also visited by FSP staff providing information and answering members’ questions.

“When the idea was introduced, some members opposed it and said that those selected to lead the task of opening the bank account are going to steal the money until the second meeting was held and the members agreed with the idea since they had developed trust in the members they had selected” Banked group participant, Kamuli

“There was fear that the signatories might use the group account to get money from the bank and they fail to pay back which may lead to arresting the group the members” Banked group participant, Kamuli

Requirements of Linking to FSPs Focus group members reported that they had to meet the following requirements before their groups could open bank accounts: groups had to have a written constitution; groups had to register and get proof of registration from the local authority; and groups had to have three signatories – each of which needed to have proof of identification as well as two passport photos. In order to get registered, groups faced various challenges. These included:

¡¡ Re-writing their constitutions¡¡ Raising the money needed to open the account¡¡ Transport and transport costs to and from the local authority as well as to the bank¡¡ Delays and corruption with registration at local authorities

“The constitution was amended many times with orders from the bank officials, lots of documents were requested from us to meet the needs and the process took us almost a month. Since most of us are peasants our gardens were never attended to during this period…. group members also made allegations about the signatories that they are just milking money out of them since the members had to contribute money for transport, feeding to the signatories whenever they travelled to town to process the account”. Banked group participant, Kamuli

“Some other thing was money to open the account; the members needed to collect the money amongst themselves to open the account” Banked group participant, Gulu

“The challenge was that you had to register with the sub county and the district before you would go and open an account with the bank…. We needed to get signatures from both LC1 and his assistant which delayed us in opening this account. We all decided to fundraise money amongst us and give the chairman a bribe because that is what he needed to quicken the process though he wasn’t openly telling us…. but we sensed it and did it for our own good….We also collected money from ourselves to facilitate those whom we had chosen to represent us….the money was deducted from what everyone had in their savings accounts” Banked group participant, Gulu

“Our group is a boda group so some members surrendered some money and fueled their bikes to cater for transport to go and open the account” Banked group participant, Gulu

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Reasons for Refusal to Link to FSPsParticipants from groups which were approached but refused linkage cited the following reasons for their decisions:

¡¡ Fear of fraud and lack of trust¡¡ Fear of not being able to borrow from their savings once it is in a bank account or wallet¡¡ Bank charges¡¡ Fear of technology ¡¡ Fear of not being able to pay back loans which will result in prosecution and losing collateral¡¡ Inadequate information about advantages and disadvantages of linkage¡¡ Language barrier ¡¡ The perception of formal facilities not being for “poor people”¡¡ Bad personal experiences of group members with FSPs

“Banks can be closed anytime; they are unreliable and when they ran out of money we have nowhere to find them” Unbanked (declined linkage) group participant, Arua

“The fear that we had was the rumors we had that banks are thieves they steal people’s money, they have also eat much money from different people, they have charges on almost everything and that we cannot manage them so we developed fear” Unbanked (declined linkage) group participant, Tororo

“we cannot tolerate banks… our money is safer with us, we earn our interest, and share it well, there are no cost and charges for maintaining our box...” Unbanked (declined linkage) group participant, Arua

“The biggest reason for this reluctance is that members borrow money from the weekly savings and they fear that if the money is taken to the bank, what will they borrow? Secondly, there are some groups that opened a bank account and their chairman and secretary picked money from people and fail to bank it. So, when members got that gossip, they become more scared” Unbanked (declined linkage) group participant, Arua

“We declined the decision because we have been hearing complaints from other saving group that whenever they deposit their money, on withdraw the money banked is always less and cannot be enough for distribution it scared us from opening a bank account” Unbanked (declined linkage) group participant, Arua

“I think some of us fear to withdraw money using machines in the bank since we don’t know how to operate them so, that has created fear in us” Unbanked (declined linkage) group participant, Arua

“First of the all the banks should stop harassing their customers in case they fail to repay the loan in time and instead give them more time to clear the loan...they should also use a polite language like “we are reminding you to pay back the loan” than calling and sending intimidating messages, therefore their approach to customers with loans need to be revised in a better way” Unbanked (declined linkage) group participant, Arua

“We need continuous trainings though from the responsible authorities to help us remove all these fears we have and with that we will begin saving with them” Unbanked (declined linkage) group participant, Tororo

“Banks just come to confuse us. They came here with funny terms, speaking English and we do not understand them. They just want to confuse us and steal our money in the process. I hear, they wanted to keep our money” Unbanked (declined linkage) group participant, Arua

“I was told that those people working in the banks are too rude, proud and they look down on uneducated people like us. Some of us have never entered banks” Unbanked (declined linkage) group participant, Arua

“Personally, as me, I have a bad experience with the bank and hence cannot advise anyone to use a bank account, let’s keep saving from our box here.” Unbanked (declined linkage) group participant, Kamuli

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Dormancy after LinkageFocus group discussions with dormant bank accounts holders revealed the main reasons for not using their accounts to be the following:

¡¡ Inadequate savings – cannot justify to bank what is left over after lending from savings pool¡¡ Low interest on savings¡¡ Proximity to the bank and related opportunity costs (e.g. transport costs)¡¡ Bank charges and fees¡¡ Most groups only deposited their savings into a formal account once it reached a certain minimum amount

– this could take time and sometimes resulted in the services being closed (e.g. mobile money wallets were blocked after 90 days of not being used) – group members were not equipped to deal with this ¡¡ Empty promises at the time of opening an account/lack of transparency

“…because whenever we come here for savings and we collect our money, immediately some members borrow it out and at times we are left with nothing or even very little to be banked…” Banked (dormant account) group participant, Tororo

“Representatives who trained us and we were convinced and then we began the process of opening an account but since then group members save little and we have nothing to save” Banked (dormant account) group participant, Tororo

“What made us to withdraw is when we give out loan we get 10% (interest of savings is earned from interest on loans). When we take the money to the bank we get 2% interest (on savings). So, we realized that our 10% is higher than what the bank gives us we decided to give loans to get a better interest other than saving in the bank.” Banked (dormant account) group participant, Arua

“The bank is also far and we don’t have transport to take us there”. Banked (dormant account) group participant, Arua

“We saved 6 000 000 that year, by the time we withdraw the money we got six thousand as interest. When we went to withdraw, we used a transport of 24,000.” Banked (dormant account) group participant, Arua

“They told us to open an account and save money there because groups that have accounts with bank get opportunities from outside for instance getting funds for development from some organizations. We have never seen it” Banked (dormant account) group participant, Tororo

Some groups reported that they were lured into linkage by false promises of financial support. When it became clear to group members that these expectations were not going to be met, they stopped using the services offered to them by the FSP. Therefore, although these groups had been banked, accounts were dormant.

“One is the security of our money, secondly, we had in mind that when other projects come, especially from the government side, we may succeed in them because we already have our bank account. Therefore, the bank account was to benefit from the organizations who wish to support our group” Banked (dormant account) group participant, Tororo

“The first reason was safety of group funds, this thought came in following an earlier experience of a saving group that lost all the group savings prior to the sharing out day. Secondly during the 2016 campaigns, we were promised by the current speaker … that we would benefit from the “PROFILA” (“Project for Financial Inclusion in Rural Areas”) project on condition that we open a group account. This prompted us to open the group account, and then also we were informed by the trainers that money saved in the bank that if the group saved money with the bank, that our money would accumulate because the bank would add interest to our savings. … “ Banked (dormant account) group participant, Kamuli

“For us we just the project as “PROFILA” but we don’t know the full meaning... the speaker informed us that we would benefit from funds from “PROFILA”. She said this money was meant to support the people in improving their livelihood through agriculture activities and we thought the speaker will not drive her vehicle to move around the village giving people money but she will instead use banks to give out money to groups with account numbers and thus we opened a bank account to gain from the speaker’s fund ... we haven’t use the account. … never used it” Banked (dormant account) group participant, Kamuli


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Perceived Impact of LinkageThe findings of the quantitative research revealed that most (69%) of the members of linked groups were of the perception that linkage changed the way the group functioned. This perception was even more pronounced amongst members linked to banks with mobile banking services (88%). Those least likely to see a change were linked to banks but had dormant accounts (i.e. bank linkage was never activated). Of those that perceived linkage to have an impact on the way the group functioned, 95% were of the perception that the group functioned better after linkage. Members with mobile money linkage only were more likely than those with other types of linkages to feel that the impact of linkage was negative.

In terms of advantages of linkage of SGs to formal service providers, most members (69%) of linked groups were of the opinion that linkage had a positive impact on the group because their savings were kept safer than before linkage. This is presented in figure 10.

Figure 10: Main advantages of linkage

There were however significant differences when the type of linkage was considered. Linked group members were in agreement that the way their savings was kept was safer than before but members from groups with mobile money services only were significantly more likely (77%) to regard this as the main advantage. This is presented in figure 11 below. Members from linked groups were however less likely than members from groups who were banked to agree with perceptions regarding other advantages.

% of members who perceived linkage to have a positive impact

Money is kept in a way that is SAFER

Easier access to savings

Quicker access to savings

Can borrow more

Easier access to loans

Better interest rates on savings

Better record keeping

Quicker access to loans

Better/lower interest rates on loans

Members less likely to default on loans

More accurate calculations of repayments of loans

More accurate calculation of pay-outs

69%

32%

29%

26%

25%

24%

23%

23%

17%

14%

12%

11%

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Figure 11: Main advantages of linkage per type of linkage

Figure 12 presents disadvantages of linkage of SGs to formal service providers. These are presented according to how linked group members perceived linkage to have had a negative impact on the group.

The most significant disadvantage is concerned with the time it took members to access their savings. 43% of members felt that it took longer for them to access their savings whilst 26% believed it was more difficult to access their savings. In terms of loans, 17% felt that it took longer, and it was more difficult to access loans. Because of the small base size, this analysis was not possible per type of linkage.

Figure 12: Disadvantages of linkage as perceived by group members

Money is kept in a way that is SAFER

Easier access to savings

Quicker access to savings

Can borrow more

Easier access to loans

Better interest rates on savings

Better record keeping

Quicker access to loans

69%62%

77%29%

33%25%

33%29%

9%28%

14%21%

32%13%

10%

27%13%

9%22%

17%11%

23%14%14%

Banked only Banked with mobile services Mobile money services only

% of members who regard linkage as negative

Takes longer get savings 43%

More difficult to get loans 17%

More difficult to withdraw savings 26%

Takes longer to access to loans 17%

Group meets less often 13%

Lower interest rates on savings 9%

Higher interest rates on loans 4%

Long distance 4%


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Challenges experienced with linkage to banksParticipants in the FGDs highlighted the length of time it took and the difficulty with accessing their savings as well as the difficulty and length of time it took to acquire a loan as being a constraint. As a result of these challenges, most groups had not taken up credit services at the time of the research. In more than one instance focus group members alleged that they could not meet the collateral requirements and therefore had not accessed credit services from the bank.

“We can’t easily get access to loans because the bank asked for security before they can advance a loan to the group… they wanted one of the group members to give in their piece of land on behalf of the group since we didn’t have group property or assets” Banked group participant, Ntungamo.

“The bank asks for collateral from us in order to advance a group loan” Banked group participant, Ntungamo

“The bank wants to use our personal property to offer a group a loan using it as collateral.” Banked group participant, Ntungamo

“The reason why we do not take loans from the banks is because there are some banks that hunt for the people who have failed to pay their money and this forces people to leave their homes. Because of this, we get frightened to borrow money from the bank.” Banked group participant, Arua

Other challenges cited by banked groups as substantiated by the quantitative research findings include:

¡¡ Distance to banks (rural groups), lack of transport and transportation costs¡¡ Not receiving interest on their savings¡¡ Having to pay fees for services¡¡ Having to maintain a minimum balance in bank accounts resulted in members receiving less money than

expected at group pay-outs¡¡ Long banking queues ¡¡ Network problems (at ATMs and with mobile banking)¡¡ Banks not recognizing their needs such as having to travel with large sums of money when depositing

savings as well as having to withdraw large sums of money when they had to pay out savings¡¡ Language barriers and low levels of financial illiteracy amongst group members

“I think the challenges we faced after opening an account was taking or transporting money to the bank because we use Boda boda to take the money to the bank. The bank cannot help us to transport the money. A thief can easily rob our money from the way. That is the main challenge we face. The process they talked of sending money digital has not yet started. So, if we lose our money on the way who will we blame?” Banked group participant, Arua

“Distance is also another challenge and we incur a lot of transport expenses, we bought a `bicycle to ease transportation but one day when we had taken our money to the Bank for saving…we were surprised when we got out of the bank and our bicycle was missing,however we cannot blame the bank because we did not put it near the bank premises” Banked group participant, Arua

“… whenever they (signatories) are depositing money especially when the account was still newly opened, the interests on savings was not given to people and this annoyed the group members. Meaning, the bank used our money for free and the group did not benefit from the bank in those terms but it was the bank that benefited and this annoyed the members. And because of this, some bank officials even had a meeting with group members and in that meeting they rectified this problem. Since that time, we started getting our interest on savings” Banked group participant, Arua

“One day when I went to withdraw all the money from the group account because it was demanded by the group as it was time for share-out by the end of the year. The bank forced me to leave some percentage of money in the account. I said ‘no I cannot leave any money because it will only create some shortage to some

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people in the group who want their money because it was the end of the year and time for share out’ …. the bank told me to leave some money there or I should not withdraw anything from the group account at all. I had to take the money like that but this forced us as the leaders to raise our personal money and give it to those people who would have gotten less money because of the bank retaining the minimum balance. This affected us as leaders” Banked group participant, Arua

“… the bank was taking some of your money as bank charges. We were not prepared for that..” Banked group participant, Arua

“Deducting money on our savings… I mean the monthly charges. What the group and the bank agreed upon was to send SMS’ to the members, so the bank was to deduct off a little money for that SMS service which the members accepted” Banked group participant, Gulu

“… long line in the bank. We spend a lot of time standing in those lines to save our money” Banked group participant, Arua

“…long processes of getting money in that, you may go to the bank with the aim of withdrawing money but get disappointed by them telling you there is no money now. This happens especially with ATMs. They make the process of getting money long because I may want the money today not tomorrow” Banked group participant, Arua

“Network also affects us. When you we are transacting on phones, sometimes there are network problems.” Banked group participant, Arua

“The problem I realized with the management of banks is that they want to speak in English, yet we do not understand English so, we face a problem of language barrier since some bank tellers do not speak our language and some of us did not go to school” Banked group participant, Arua

“He (signatory) was replaced because of he was elderly and wasn’t very conversant with the bank procedures.” Banked group participant, Arua

Value of LinkageApart from the value of their savings being kept safely, focus group participants particularly valued the banking experience of the group for building their confidence and knowledge. The following are verbatim quotes from selected FGDs.

“…there is development amongst group members which is a positive experience” Banked group participant, Tororo

“Self-esteem is built among the leaders who get to interface with different bank officials in their tasks of leading the team” Banked group participant, Ntungamo

“I have gained more self-esteem because of the exposure my responsibility gives me” Banked group participant, Ntungamo

“I’ve got more knowledge on banking as an individual” Banked group participant, Ntungamo


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CONCLUSION

Most financial service providers who are engaged in linkage banking are now adopting the NGOs facilitated model. This is because FSPs obtain clients already nurtured by the NGOs and ready to commence a banking relationship. The costs of client acquisition is minimised since no mobilisation and advertisement expenses amongst others are incurred in linking the SLGs. This results in low customer acquisition costs for the FSPs in addition to the SLG members’ deep knowledge and appreciation of savings and overall personal financial management. The increased savings volume means that the FSPs easily achieve their savings mobilisation targets.

In addition, members in the NGO supported model are mostly individuals from the rural poor communities compared to the FSP supported linkage. The NGOs mainly work to support the disadvantaged segment of the population. Linkage therefore offers an opportunity for the disadvantaged segment to access financial services from formal financial institutions. The role played by the NGOs in group formation and nurturing was important for preparing groups for linkage.

Demand for linkage mostly came from groups being advised by their trainer/facilitators, although in some instances groups were approached by representatives of FSPs. Ultimately groups made the decision concerning linkage themselves. Facilitating agency and FSPs, emphasized offering protection and safety of the groups’ savings.

According to linked groups, they had to meet the following requirements in order to be linked:

¡¡ Groups had to have a written constitution ¡¡ Groups had to register and get proof of registration from the local authority¡¡ Groups had to have three signatories – each of which needed to have proof of identification as well as

two passport photosGroups faced various challenges to get registered. These challenges include:

¡¡ Re-writing their constitutions¡¡ Raising the money needed to open the account¡¡ Transport and transport costs to and from the local authority as well as to the bank¡¡ Delays and corruption with registration at local authorities

Focus group participants from groups which were approached but refused linkage cited the following reasons for their decisions:

¡¡ Fear of fraud and lack of trust (both in terms of the institution as well as members dealing with the insti-tution) because of the process being less transparent than the group process and procedures which were based on complete transparency ¡¡ Fear of not being able to borrow from their savings once it is in a bank account or wallet. In this regard,

lack of understanding the process played a significant role. Group members did not know when (at what stage) their savings would be banked and at what stage they would be borrowing. The group procedure was based on contribution to the savings pool at every meeting – and immediately accessing loans. They were not clear on how this process would be affected. If the savings were banked immediately after contri-bution – what was the impact on loans/borrowing? ¡¡ Fear of not being able to pay back loans which will result in prosecution and losing collateral – one of the

key benefits of borrowing from the group was to be able to borrow without the collateral requirement. Losing this benefit was key to refusal to linkage¡¡ Bank charges – once again lack of information played a significant role. Rumours of service charges and

lack of understanding what these charges entailed or what it was for resulted in fear of losing part of their savings¡¡ Fear of technology ¡¡ Inadequate information about advantages and disadvantages of linkage¡¡ Language barrier ¡¡ The perception of formal facilities not being for “poor people”¡¡ Bad personal experiences of group members with FSPs.

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This research found that the reasons for dormant accounts were indicative of FSPs not taking cognisance of, and/or not addressing the initial fears of groups. Although some groups went ahead with linkage they stopped using the services of their linkage partner when challenges such as inadequate savings, low interest in savings, etc. were encountered.

This research revealed that there was a significant difference between linked group members and non-linked group members in terms of using other savings mechanisms. Members of groups which were linked were significantly more likely to use formal service providers whilst members of groups which were not linked were more likely to use informal service providers. FinScope and other surveys revealed that lack of awareness, confidence as well as lack of financial literacy are main barriers to usage of formal financial services. The fact that members from groups which were not linked were more likely to use informal service could be as a result of linked group members gaining confidence and experience in using formal services and experience dealing with providers of formal services.

According to the findings of the quantitative research conducted in the first study, almost half of respondents believed that not all their expectations of joining a group have been met. Linked group members were more likely to have unmet expectations. Significant differences between linked and non-linked group members with unmet expectations included:

¡¡ Non-linked group members were significantly more likely to perceive the pool of savings smaller than expected – this finding most likely relates to the fact (as was found during the scoping mission) that groups with larger savings pools were preferred for linkage.¡¡ Linked group members with unmet expectations were significantly more likely not to get a loan when they

needed one and also significantly more likely not be able to borrow the amount they needed. ¡¡ If the type of linkage was considered, the findings of the quantitative research further indicated that linked

group members with mobile money services were significantly more likely to have unmet expectations than those linked to banks. Once again this could be related to linking resulting in raised expectations (maybe unrealistically so and even unintendedly) of group members. Mobile money service providers would be less able to meet unrealistically raised expectations mainly because of more limited service offerings compared to banks.

Linked group members agreed that main advantage of linkage was that the way their savings was kept after linkage was safer than before. They valued the training and confidence and experience in dealing with formal financial institutions which they gained as a result of linkage.

The most significant disadvantage to linkage was the amount of time taken to access savings and loans and that it was also more difficult to do so as service charges were not well understood, expectations regarding interest was not met and proximity to FSPs posed a challenge as did network availability and reliance

This research provides evidence that although linkage has significant advantages to group members, it also still poses several challenges that will have to be overcome before formal financial institutions will be able to provide services to SG members in a manner that comprehensively mimics the advantages of informal service providers.


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APPENDICES

Linkage activities in Uganda

FSP Partner organization

Requirements for linkage

Product description

Charges Mobile phone usage

Comments

Barclays Bank Uganda limited

Care International in Uganda (CARE)

KYC requirements including:

¡¡Registration of the SLGs¡¡Certified Copy of the Constitution: ¡¡National Identifica-tion Documents: ¡¡Attendance list and certified resolution to open a savings account: ¡¡ Introduction Letter from the Local Councils: ¡¡Passport size Photographs

Savings with the following features:

¡¡No minimum account opening amount¡¡No minimum balance ¡¡One free weekly withdrawal ¡¡No charges on cash deposits ¡¡Monthly charge of UGX 2,000 ¡¡One free monthly bank statement¡¡ 3 signatories must sign a withdrawal slip. ¡¡Credit in form of overdraft at 8% p.a.

¡¡M o n t h l y charge of UGX 2000¡¡ T r a n s p o r t costs to and from the bank for 3 signatories to withdraw¡¡Majority incur t r a n s p o r t costs for one person when d e p o s i t i n g while few groups on mobile phone platform incur MNO charges for deposits

¡¡Mobile phone banking platform implemented with deposit function-ality operating but the withdraw functionality not yet installed.¡¡ Few groups selected for the pilot are using the platform.

¡¡Groups are happy with the savings product design¡¡ Interest on credit is charged on funds that have been utilized¡¡ Transaction costs are high due to transport cost for majority of groups not using the platform

Centenary Bank Uganda Limited

CARE Same as Barclays Bank Uganda limited

Same as Barclays Bank but no monthly charge

¡¡ Incur MNO market rate t ransac t ion charges only

¡¡Mobile phone banking platform fully operational enabling both depositing and withdrawing

Groups transact using mobile phone banking

PostBank Uganda Limited

CARE in other sub regions other than Lira

Same as Barclays Bank Uganda limited


¡¡ Incur MNO market rate transact ion charges only


Groups transact using mobile phone banking

Catholic Relief Services (CRS) in Lira sub region

Same as Barclays Bank Uganda limited


¡¡ Incur trans-port costs for one person when depos-iting and 3 persons w h e n withdrawing

¡¡Projected was ended abruptly before groups had mastered use of the mobile phone platform

¡¡ Training groups on the platform was inadequate and the CBTs were also not equipped with the skills to provide support in the absence of bank officials

Opportunity Bank Uganda Limited

CARE Same as Barclays Bank Uganda limited


¡¡ Incur MNO market rate transact ion charges only


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